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Fed Policy and Moral Hazard

By

Harvey Rosenblum

Updated Oct. 18, 2007 12:01 a.m. ET

Accusations of moral hazard have been tossed around quite a bit since the Federal Reserve lowered the federal-funds rate by half a percentage point a month ago today. Moral hazard, if you're neither an actuary nor a practitioner of the "dismal science," occurs when investors or property owners are protected from the downside risks of bad investment decisions, thus encouraging them to take still more unwise risks in the future.

As entertaining as this discussion of the nexus between the Federal Reserve and moral...